Diamond Jeweler Turns Alleged Smuggler as India Gold Prices Rise

India is the world's largest consumer of gold. Photographer: Dhiraj Singh/Bloomberg

Aug. 7 (Bloomberg) -- In January, jeweler Vihari Sheth was
publicizing a ritzy new line of diamond-encrusted designs. Last
week, she was arrested at Mumbai airport with nearly $400,000 of
gold jewelry in her underwear and on her person.

The 27-year-old has a store in Singapore and is married to
a director of Mumbai-based Siyaram Silk Mills Ltd, a suit maker
that is a household name in the country. She is suspected of
smuggling to supply a relative’s stores in Mumbai, according to
court documents examined by Bloomberg.

Her arrest offers a glimpse into how even the wealthy may
be joining small jewelers and organized gangs to skirt new
government taxes on bullion imports that have made gold about 9
percent more expensive in Indian stores.

“The financial incentive to smuggle and bring in gold
illegally is just increasing,” said Victor Thianpiriya,
commodities analyst at Australia and New Zealand Banking.

The government’s actions have created a shortage of gold in
the domestic market, he said.

India is the world’s largest buyer of gold and the
government has doubled taxes on bullion imports this year to
shrink a ballooning trade deficit and end a slide in the rupee.
Gold is the country’s second largest import after oil.

Middle East

The precious metal cost about $4,185 more, or 9 percent
extra, per kilogram in Mumbai last week compared to Dubai or
Singapore after the taxes. That means anyone who buys cheaply
overseas and then evades the taxes can sell at a profit.

In global markets, gold prices have been falling as some
investors lose faith in the metal as a store of value. Bullion
fell to $1,180.50 per ounce on June 28 in London, the lowest
level in almost three years.

Bullion for immediate delivery lost as much as 0.8 percent
to $1,273.55 an ounce and was at $1,278.89 at 12:15 p.m. in
Singapore.

Poor laborers working in the Middle East are acting as
couriers for organized gangs in return for a ticket home and a
few thousand rupees, according to Rishi Yadav, assistant
commissioner at the Mumbai customs department’s Air Intelligence
Unit.

The gangs seek to benefit by selling that smuggled bullion
to traders and mom-and-pop jewelry stores, who benefit from
cheaper supplies. Customs agents also say there is an increasing
incidence of lay people sneaking in gold bars and jewelry
without paying the duty.

’Gold Sells’

Government experts believe the jewelry being brought in by
Sheth was likely intended for resale, prosecutor Arun Gupte said
at an Aug. 3 bail hearing.

The steady demand for gold among Indian households means
there’s a ready market for smuggled gold, said Suresh Hundia,
owner of Hundia Exports Ltd. and a former president of the
Bombay Bullion Association. “Gold always sells.”

Sheth, now being held in a women’s jail in Mumbai, had
planned to use the jewels found on her at a wedding later this
week and wasn’t smuggling, one of her lawyers argued at the bail
hearing.

The prosecutors countered by producing a customs
declaration signed by Sheth at the airport before she was
searched, in which she said she had nothing to declare. Sheth’s
uncle told investigators she regularly smuggled jewelry for sale
at two stores in Mumbai, government lawyer Gupte said in court.

Her admissions to revenue officials were made under duress
and she wasn’t smuggling for herself or her uncle, her lawyer
Ravi Hirani said in an interview. All the confiscated jewelry
was for her personal use and the family is ready to pay the
duties and fines to settle the case, he said.

In a January interview with the Singapore Tatler, Sheth
told the publication she had come up with a “chic and elegant”
luxury line of jewelry for women and planned to expand by adding
stores in India and Southeast Asia.

She is married to Abhishek Poddar, a member of the family
that controls Siyaram Silk Mills. Pawan Poddar, Abhishek’s
father and a joint managing director of the company present at
her bail hearing, didn’t comment. The magistrate has given until
Aug. 14 for the investigating agency to gather evidence,
according to court documents.

Electronic Items

Sheth’s case contrasts with South Asian laborers working in
the Middle East who have accounted for most recent gold
smuggling arrests at Mumbai airport. In the last few months,
agents have caught laborers from Dubai bringing in gold hidden
on their person or in electronic goods like televisions.

Organized rings “target those fellows who have stayed
there for more than one year and would like to come back, but do
not have any money,” Satish Kumar, commissioner of central
excise for Mumbai Zone 2, said in an interview.

Agents recently nabbed one traveler after a metal detector
kept beeping near his waist. He was smuggling the precious metal
in his rectum and records showed he traveled the Dubai-Mumbai
route 13 times last year.

Last month, India’s government said it will require
importers to export a fifth of the bullion they bring into the
country by selling jewelry overseas. Added to the new taxes,
this rule reduces the amount of gold left for Indian shoppers to
buy legally.

The latest government curbs put retailers such as Titan
Industries Ltd., Tribhovandas Bhimji Zaveri Ltd., and PC
Jeweller Ltd. at a disadvantage. An overwhelming majority of
their business is in the domestic market, and they must find a
way to either raise exports to meet government restrictions or
arrange with other companies to export on their behalf.

Illegal Trade

The government’s curbs are fueling a “huge gap between the
supply and demand for gold,” said Hundia, the former president
of the Bombay Bullion Association. Illegal traffickers of the
yellow metal are trying to fill at least part of that gap.

At Mumbai airport, customs agents confiscated gold worth 93
million rupees from April to June, almost as much they nabbed in
the whole of the last year.

Airports constitute only a “tiny fraction” of the gold
entering the country illegally: The bulk of the metal smuggled
into India comes by road from Nepal and Bangladesh, said
Gnanasekar Thiagarajan, director of Mumbai-based commodities
consultant Commtrendz Risk Management Services.

Government agencies across the country have so far seized
about 160 kilos (352 pounds) of gold from people trying to bring
it in illegally in the last four months, according to a senior
revenue official, who declined to be named as he isn’t allowed
to speak to the media.

Nothing to Declare

Last week, after clearing immigration, Sheth walked out of
the terminal telling officials she had nothing to declare,
according to court documents examined by Bloomberg.

After closer examination by female officers, she admitted
to having jewelry on her person. They found 15 sets of
“diamond-studded gold jewelry, concealed and recovered from the
upper and lower inner garments,” according to court documents.
These items were valued at 23.5 million rupees ($384,000).

“It doesn’t stand to reason that she had any intention of
declaring the jewelry,” prosecutor Gupte told a packed
courtroom at the bail hearing. “Could she have undressed in the
baggage hall to declare all the jewelry?”